Author Archives: Scalper1

GoDaddy Q1 Revenue Tops Views On Strong International Growth

GoDaddy ( GDDY ) stock was up in premarket trading Thursday, after the Internet registrar late Wednesday posted Q1 revenue that topped estimates and reported a lower-than-expected loss. The Web-hosting services provider and Internet domain-name registrar firm also  slightly raised its 2016 guidance for revenue and EBITDA (earnings before interest, taxes, depreciation and amortization). GoDaddy stock was up 2% in premarket trading, near 31, as it attempts to regain its 50-day moving average line. GoDaddy stock broke out of a cup-with-handle base at 33.13 on April 1, but shares have slipped since, hurt by the announcement of a secondary stock offering. Even with a 2% rise, GoDaddy stock is more than 6% below the buy point. Scottsdale, Ariz.-based GoDaddy said it lost 15 cents in Q1, with revenue rising 15% to $433.7 million. Analysts had modeled a 16-cent per share loss and revenue of $430 million. GoDaddy’s core business is selling and managing Internet domain names. It has expanded into website-hosting services for small businesses. Rivals include  Neustar ( NSR ) ,  Web.com ( WWWW ),  Endurance International ( EIGI ) and  Wix.com ( WIX ). “We view these results as intrinsically impressive for the largest competitor in the space. And we continue to believe that product additions and international expansion will fuel future growth,” said Mark Mahaney, an analyst at RBC Capital, said in a research report. International revenue rose nearly 17% to $112.7 million. GoDaddy forecast current-quarter revenue of $450 million at the midpoint of its guidance, up 14% from the year-earlier period and in line with consensus estimates. For the year, it increased revenue guidance to $1.84 billion at its midpoint from its earlier $1.83, vs. consensus estimates of $1.836. GoDaddy said it expects 2016 EBITDA of $409 million at its midpoint, up from earlier guidance of $405 million. GoDaddy has a weak IBD Composite Rating of 54 out of a possible 99. GoDaddy stock fell in early April after GoDaddy announced a proposed class A common stock offering of 16.5 million shares. Selling stockholders include entities affiliated with big investment firms Kohlberg Kravis Roberts & Co . , Silver Lake Partners and Technology Crossover Ventures, as well as YAM Special Holdings, which is owned by GoDaddy founder Bob Parsons. The company itself will receive no proceeds from the offering.

Alibaba Stock Rises As Strong Revenue Growth Trumps Earnings Miss

Alibaba Group’s fourth-quarter revenue rose a better-than-expected 39 percent after China’s biggest e-commerce company drew in more users and boosted services to merchants on its platforms. Sales jumped to 24.2 billion yuan ($3.7 billion) in the three months ended March, Alibaba ( BABA ) said. That compares with the 23.2 billion-yuan average of estimates compiled by Bloomberg. Adjusted earnings-per-share were 3.02 yuan compared with analyst projections for 3.52 yuan. Alibaba’s platforms, which link buyers and sellers, hit a 3 trillion yuan milestone of goods sold as the company continues to expand even as the Chinese economy grows at the slowest pace in 25 years. The online emporium is making more from mobile advertisements, deepening its push into rural domestic regions and branching out overseas to boost transactions. “Alibaba is still growing very nicely and sustaining very high margins in the face of the concerns about Chinese consumers and the face of competition,” said Gil Luria, an analyst with Wedbush Securities Inc. “It’s good results for Alibaba and it seems like their business is holding up.” Net income rose 85 percent to 5.3 billion yuan, just shy of the 5.4 billion-yuan average of estimates. Affiliate Zhejiang Ant Small & Micro Financial Services Group, which owns Alipay, incurred a net loss after spending to drive user growth, the company said Thursday. Shares of Alibaba rose more than 4 percent in pre-market trading. The stock has dropped 6.7 percent this year compared with a 1.4 percent advance in the NYSE Composite Index. Revenue on Alibaba’s Chinese retail e-commerce platforms jumped 41 percent, driving growth in spending by merchants on the company’s marketing services. Commissions accounted for about a third of that. Alibaba has pulled out the stops to get its e-commerce platforms in front of villagers, setting up free Internet-equipped computers and working with local officials to train potential buyers and sellers. It had a presence in 12,000 villages across the country by the end of January, out of about 600,000. That effort to diversify the business comes as Alibaba is simultaneously trying to tap more of the 620 million Chinese who access the Internet from their smartphones and tablets. “The company was able to better monetize on selling advertisements to merchants,” Marie Sun, an analyst at Morningstar Investment Service, said before the earnings. “As the economy growth slows, it seems that merchants are more willing to place ads with bigger platforms like Alibaba that have a wider reach of customers.” The cloud computing business almost tripled revenue to more than 1 billion yuan and the business now has more than half a million paying customers.

Why Does Indexing Shrink Alpha?

Jesse, over at Philosophical Economics, has written a couple of really fantastic posts (see here and here ) on indexing and market efficiency. His basic conclusions: The trend in passive investing is sustainable. The rise of passive indexing improves market efficiency. I’ve made the same points in a series of posts in recent months, including: Although I’ve written a good deal on this, I didn’t explain why indexing has made life so much harder for traditional active managers (aside from the obvious one, which is huge hedge fund fees). And although I totally agree with Jesse’s conclusions, I think we disagree slightly on the why. So, Jesse basically says that indexing removes unskilled players from the overall pool by relegating them to the game of owning specific index funds as opposed to engaging in the pursuit of real security analysis. The result is fewer and fewer highly skilled investors pursuing alpha via security analysis. I am going to disagree there. I think indexing is raising the aggregate skill level by giving everyone access to sophisticated strategies that better reflect “the market” portfolio. You likely know from reading this site that true passive indexing doesn’t exist. We’re all active because we all deviate from global cap-weighting. In addition, we know that an “index” is an extremely vague thing in the modern financial world. Dr. Andrew Lo even wrote an entire paper on this topic, because the concept has become so opaque in a world where there’s an “index” for everything from volatility, to futures contracts, to hedge funds and even Millennials. So, we’re knee deep in word games before we can even finish the term “passive indexing”… That doesn’t matter, though. What I want to emphasize is that the rise of indexing (regardless of how “active” that index is) has created products that give even the most novice investor access to more sophisticated strategies. Indexing doesn’t remove unskilled players from the game. It actually brings them into the game in a more even playing field. In today’s world, everyone can own Risk Parity, Global Macro, Long/Short, Private Equity, etc. As a result of this product development, the overall pool of secondary market investors has become a better reflection of the aggregate financial markets. The result of this is that the swimmers in this pool are all starting to look increasingly similar. For instance, let’s say we had just two investors in the world. Person A buys all 500 S&P 500 stocks individually, while Person B just finished reading some Gene Fama paper and decides to buy just 200 momentum stocks in a product wrapper like an index fund. When the momentum buyer enters the market, she will likely change the composition of the S&P 500, because her entrance to the market changes the allocation that Person A owns. As a result of this, Person A’s portfolio actually starts to look more like Person B’s portfolio, because now her momentum stocks look more momentumy (I just made that word up). Person A’s portfolio won’t be a perfect reflection of Person B’s for obvious reasons, but layer on 10,000 various index funds all trying to capture some form of alpha that doesn’t exist in the aggregate, and you get a bunch of portfolios that increasingly look similar. 1 A better (or worse, depending on your view) visual here might be Person B peeing in Person A’s pool. Person A’s pool will absorb the change in color, but it won’t be exactly the same color as before, and in the aggregate, the pool will morph into some other color reflecting all of the liquids that comprise that pool. This shift in the financial markets can best be seen in the hedge fund space, where the growth in the industry has coincided with rising correlations to the S&P 500 and shrinking alpha: So, the reason that indexing makes alpha more unachievable is to the fact that indexing makes the participants in the aggregate financial pool appear increasingly similar because they’re all utilizing a more sophisticated approach to asset allocation, leading to a more homogeneous reflection of “the market” portfolio. As a result, the margin for outperformance inside of the pool becomes increasingly thin, leading to alpha shrinkage. 2 1 – See ” Understanding Modern Portfolio Construction ” . 2 – I have significant knowledge in the area of shrinkage in pools, so trust my opinion here. NB – Notice I don’t argue that indexing makes the market more “efficient” as in, it reflects all available information. I don’t know what that term even means in a world where the idea of market efficiency must necessarily be a gray area. I personally don’t find the concept of an efficient market to be all that useful, since it is impossible to prove or disprove the idea that “the market” always reflects “the market” accurately.